Etihad Airways signed its first export credit guaranteed transaction in August 2009, in a deal arranged and financed by HSBC. This initial facility – worth US$123m and covered by the UK’s ECA ECGD – was the first of four ECA and one US Ex-Im term loan facilities signed by the UAE’s national airline in support of aircraft acquisitions in recent months.

HSBC’s transaction represents the first tranche of a programme of financing valued at over US$1bn for eight Airbus and Boeing aircraft to be delivered by the end of 2010.

In the initial agreement, HSBC acted as sole mandated lead arranger, facility and ECA agent, security trustee and hedge provider for the US$123mn transaction, signed in August 2009, and to be used to part finance an Airbus A340-600 aircraft for the airline.

Notably, HSBC arranged and financed a second ECA facility – worth US$95mn – for Etihad just a few months later in December last year. This was a follow-on mandate for a different type of aircraft (Airbus A330-300).

Both of these transactions are covered by the UK’s ECA, ECGD, and then reinsured by France’s Coface and Euler Hermes in Germany. Payment schedules for each transaction are 12 years from the date of delivery of each aircraft by way of 48 equal quarterly instalments on an annuity/mortgage-style basis.

The structure of the two deals involves an ECA-supported loan agreement between HSBC and a special purpose company (SPC) in a jurisdiction offshore to the United Arab Emirates, and a matching finance lease between the SPC and the airline, explains Philip Lewis, director of the structured asset finance team within export finance, global banking and markets at HSBC in London. “The SPC owns the aircraft and leases it to Etihad in order to enhance the overall security package in accordance with the consensus, the OECD body which governs the implementation of ECA facilities.”

The transactions were approved by the ECAs on the basis of the corporate risk of Etihad without any explicit guarantees from the government of Abu Dhabi, demonstrating the strength of the airline’s business model and commercial platform.

The successful approach to the ECAs has placed Etihad in a robust position to avail itself of further similar activities in the future, in respect of both Airbus and Boeing aircraft.

As part of its extensive expansion and fleet renewal programme, Etihad resolved in late 2008 to broaden its base of funding through the implementation of European ECA and US Ex-Im funding schemes.

HSBC’s Lewis explains: “Although the Abu Dhabi government enjoys an undoubted financial standing, it is also keen to encourage financial discipline and independence amongst its strategic corporations. In this respect, Etihad has recognised the strong advantages of ECA facilities at present, offering as they do the potential to tap an alternative funding source which still has the capacity to deliver significant numbers and longer tenors.”

James Hogan, chief executive officer of Etihad Airways, comments on the agreements: “With the support of the European ECAs we have secured funding at very competitive rates in what continues to be a difficult economic environment. Their conclusion at this time is indicative of the positive relationship between Etihad Airways and the international financial community.”

Etihad’s other ECA-supported deals signed in recent months include a US$111mn facility arranged and financed by Landesbank Baden-Wuerttemberg in September 2009, and a US$95mn agreement arranged and financed by The Bank of Tokyo-Mitsubishi UFJ in January 2010. Each of these transactions largely followed the precedent of HSBC’s preceding pioneering facilities. Etihad also closed a US$129mn US Ex-Im-supported agreement arranged and financed by Sumitomo Mitsui Banking Corporation in December 2009.
Deal information

Amount: US$123mn and US$95mn (US$218mn)
Mandated lead arranger: HSBC
ECAs: ECGD, Coface, Euler Hermes
Law firms: Norton Rose for the ECAs and HSBC
Tenor: 12 years
Date signed: August 13, 2009 and December 21, 2009